Bernstein Pounds Table On Nokia, Says Consensus Too Cautious

Bernstein’s Pierre Ferragu maintained an Outperform rating on Nokia Corporation (ADR) NOK, with a price target of €9.

Consensus Very Cautious

“After a few months of uncertainty the Street now has access to a fully-fledged sell-side consensus for the new Nokia Corp,” Ferragu mentioned, while noting, “We conclude that consensus has reached very cautious levels for this year and incredibly low expectations beyond that.”

According to Ferragu, the consensus expectations “barely” account for the synergies announced by Nokia in 2015, while modeling only slight margin expansion, along with flattish revenue growth and almost no share buybacks.

“This doesn't make any sense to us and goes against all industry dynamics we can observe today,” Ferragu pointed out.

Related Link: Why Was Nokia Cautious On Next-Quarter Network Sales?

Estimates Above Consensus

The analyst also stated that the estimates were about 15 percent below consensus for 2016 and 30 percent below consensus for 2017.

Free cash flow per share is expected at €1 in 2019, “the year we see the full potential of the merger and the industry consolidation becoming apparent,” the Bernstein report said.

Even considering a downside scenario, where wireless equipment growth turns negative, the estimates still come in meaningfully above consensus.

Consensus revenue forecasts suggest a flat CAGR during 2015–2018, along with 1.1 points of gross margin expansion and a mere one percent decline in OPEX per annum.

“Furthermore, consensus uses a flat share count between 2016 and 2018 and a significant build up in the net cash balance. These expectations appear extremely cautious,” the report added.